Putin woos foreign investors

The Russian president pledges to refrain from capital controls while China’s Huawei and Fosun offer investment.

Russian President Vladimir Putin courted foreign investors for his flagging economy on Thursday, promising less red tape, no tax hikes and no foreign currency restrictions.

His reassurance followed a report that the Russian central bank was mulling introducing capital controls to prop up the rouble which dropped to record lows on Tuesday.

The Russian economy will likely flat line this year as Western sanctions tighten over Russia’s involvement in the Ukraine conflict. Putin called the sanctions “silly nonsense” to a crowded room of investors in Moscow’s World Trade Centre. He warned that the sanctions “in the long run will damage the global economy and the full extent of the repercussions are yet to be seen.”

Putin said that despite fierce debate Russia would not be raising taxes for foreign businesses either. He also vowed support for sanction-hit Russian companies. “The state is prepared to support sectors and specific companies that are subject to sanctions,” he said.

Putin added that the West’s sanctions have acted as a catalyst for Russia’s efforts to forge closer ties with Asian countries whose fast-growing economies mean they will have greater clout going forward.

While Russia will not ignore its old partners in Europe “we must look to the future” he told an audience of about 1,500 delegates from around the world at a conference organised by state-controlled VTB Capital.

Putin’s visit to China in May resulted in a slew of trade deals including the sale by the increasingly isolated Kremlin of $400 billion worth of natural gas to China at about 40% below the prevailing market price. “We’re [China and Russia] not limiting ourselves to oil and gas,” said Putin at the conference.

He sat on a panel with executives from VTB, China’s Fosun and Huawei, Italy’s Pirelli, France’s Sanofi Pasteur and India’s Essar Group.

Capital flight

Foreign capital has fled the country as international tension has ratcheted higher over the crisis in Ukraine. Outflows from Russian assets hit $74.6 billion in the first half, already topping the $61 billion that left the country in all of 2013, according to the central bank’s data. Russia expects outflows to reach around $100 billion by the end of the year.

The RTS benchmark index, which is denominated in dollars, entered bear market territory and inflation has soared.

Putin turned on the charm for his audience. “All I have to do is smile to show the devil is not as frightening as he seems,” he said. Looking relaxed he joked about his past as an officer in the KGB, the main security agency for the Soviet Union.

The heads of Huawei and Pirelli sat beside him on the panel rushed to say they will be increasing their investment in Russia and related success stories of past dealings in the country.

“We will continue to increase investment in Russia,” said Huawei, executive board director, Meng Wanzhou. Huawei first opened an office in Russia in 1997. 

VTB Bank’s president Andrey Kostin reassured her during the panel discussion that reports Russia would restrict information and communications technology were false citing his government sources.

Liang Xinjun, the chief executive of Fosun Group bowed to the other panellists and the audience before saying he hopes to find more opportunities to invest in Russia. Liang said he would like to invest in Russian agriculture, particularly fisheries given Fosun’s experience in the area and was interested in helping build an off-shore renminbi centre in Moscow.

Putin is pushing for less reliance on the dollar. Gazprom Neft and China National Petroleum Corp have settled transactions in roubles or yuan instead of dollars he said.
 

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